Spanish economy improving, says IMF

9 Jun 15

Spain’s economy is expanding rapidly and is set to grow by 3.1% this year, the International Monetary Fund has said, but it warned that vulnerabilities remain in the country due to “deep structural problems”.

Increasing its forecast for growth in the country from 2.5% as part of its Article IV Mission to the country, the IMF said that Spain was growing above the eurozone average and that economic confidence was returning following the impact of the 2008 global financial crash. Following this, the country entered a eurozone bailout programme, which it exited in 2014.

In its economic examination, the fund said the Spanish government should “seize on the current momentum” to implement additional reforms and avoid reversing unpopular policies introduced following the bailout deal.

Additional efforts will be needed to sustain robust growth over the medium term since the country was currently benefiting from lower oil prices, the depreciation of the euro, and the European Central Bank’s “very supportive monetary policy”, the fund said.

“The level of unemployment is still painfully high and vulnerabilities remain. Sustaining job-rich growth at the current pace, further reducing public and private indebtedness, and maintaining confidence will require additional fiscal efforts and structural reforms,” it said in its concluding statement.

“Spain has continued to bring down its fiscal deficit as the economy has recovered, but the level of public debt is very high and still increasing. Any windfalls from lower interest rates, higher-than-expected growth, and easing deflationary pressures should therefore be used to bring the deficit down further and ensure debt is put firmly on a downward path,” it concluded.

Among areas for reform, the IMF urged authorities to continue reducing private debt, implement reforms to boost job creation and address regional differences in order to strengthen their finance systems.

It also suggested raising excise duties and environmental levies and gradually reducing value added tax to bring Spain’s revenue collection “more in line with other European countries”.

At the regional level, additional fiscal savings could be generated by reducing the costs of providing public health and education services by increasing regions’ responsibility to co-pay for these services.

  • Judith Ugwumadu
    Judith Ugwumadu

    Judith writes about public finance, public services and economics across Public Finance International and Public Finance. She previously undertook reporting stints at Financial Adviser, Global Security Finance and The Sunday Express.

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